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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2000 Commission File No.
000-27607
CYSIVE, INC.
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(Exact name of registrant as specified in its charter)
Delaware 54-1698017
- - ------------------------ ----------------------
(State of Incorporation) (I.R.S. Employer
Identification Number)
10780 Parkridge Blvd.
Suite 400
Reston, Virginia 20191
(703) 259-2300
(Address of principal executive offices)
11480 Sunset Hills Drive
Suite 200E
Reston, Virginia 20190
(703) 742-0865
(Former address of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
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As of May 4, 2000, 13,859,425 shares of common stock were outstanding.
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<PAGE>
CYSIVE, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Balance Sheets as of December 31, 1999 and March 31, 2000............................... 2
Income Statements for the three months ended March 31, 1999
and 2000............................................................................ 3
Statements of Cash Flows for the three months ended March
31, 1999 and 2000................................................................... 4
Notes to Financial Statements........................................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................................... 6
PART II - OTHER INFORMATION
Item 1. Legal Proceedings........................................................................... 11
Item 2. Changes in Securities and Use of Proceeds................................................... 11
Item 6. Exhibits and Reports on Form 8-K............................................................ 11
</TABLE>
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<PAGE>
PART I.
FINANCIAL INFORMATION
ITEM 1. Financial Statements
CYSIVE, INC.
Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
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(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents................................................... $ 2,433 $ 7,141
Investments................................................................. 45,040 162,984
Accounts receivable, less allowance of $651 and $654 at December
31, 1999 and March 31, 2000, respectively ................................ 6,565 9,837
Prepaid expenses and other assets........................................... 1,243 1,079
Deferred income taxes....................................................... 383 392
--------- ---------
Total current assets...................................................... 55,664 181,433
Furniture, fixtures and equipment, net........................................ 641 3,157
Deferred income taxes......................................................... 4,766 4,571
Other assets.................................................................. 283 303
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Total assets.............................................................. $ 61,354 $ 189,464
========= =========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable............................................................ $ 346 $ 1,534
Accrued payroll............................................................. 2,592 2,805
Accrued liabilities......................................................... 737 1,393
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Total current liabilities................................................. 3,675 5,732
Commitments and contingencies................................................. - -
Stockholders' equity:
Preferred stock, $0.01 par value; 10,000,000 shares authorized; no
shares issued and outstanding............................................... - -
Common stock, $0.01 par value; 75,000,000 shares authorized;
11,409,298 and 13,638,802 issued and outstanding at December 31,
1999 and March 31, 2000, respectively...................................... 114 136
Additional paid-in capital.................................................... 79,881 204,595
Deferred stock compensation................................................... (13,572) (12,606)
Accumulated deficit........................................................... (8,744) (8,393)
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Total stockholders' equity................................................ 57,679 183,732
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Total liabilities and stockholders' equity $ 61,354 $ 189,464
========= =========
</TABLE>
See accompanying notes
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<PAGE>
CYSIVE, INC.
Income Statements
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended March 31,
1999 2000
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<S> <C> <C>
Revenues.......................................................................... $ 4,178 $ 12,295
Direct costs................................................................... 1,530 4,079
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Gross profit...................................................................... 2,648 8,216
Operating expenses:
General and administrative................................................. 1,294 4,144
Sales and marketing........................................................ 771 2,743
Stock compensation......................................................... 19 966
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Total operating expenses.......................................................... 2,084 7,853
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Operating income.................................................................. 564 363
Other income, net................................................................. 11 581
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Income before income taxes........................................................ 575 944
Income taxes...................................................................... - 593
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Net income ....................................................................... 575 351
=========== ============
Earnings per share:
Basic earnings per share................................................... $ 0.07 $ 0.03
Diluted earnings per share ................................................ $ 0.07 $ 0.02
Weighted average shares outstanding............................................... 8,127,000 11,941,383
Weighted average shares and common equivalent shares
outstanding.................................................................... 8,770,624 17,622,266
</TABLE>
See accompanying notes
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<PAGE>
CYSIVE, INC.
Statements of Cash Flows
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
1999 2000
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<S> <C> <C>
Cash flows from operating activities:
Net income....................................................................... $ 575 $ 351
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.................................................................. 18 99
Amortization.................................................................. 5 10
Stock compensation expense.................................................... 19 966
Deferred income taxes......................................................... - 185
Non-cash tax expense.......................................................... - 407
Provision for doubtful accounts............................................... 112 4
Changes in assets and liabilities:
Accounts receivable......................................................... (394) (3,275)
Prepaid expenses and other assets........................................... 1 145
Accounts payable............................................................ (2) 1,188
Accrued liabilities......................................................... 632 869
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Net cash provided by operating activities........................................ 966 949
Cash flows from investing activities:
Purchase of investments..................................................... - (123,975)
Sale of investments......................................................... - 6,030
Capital expenditures........................................................ (77) (2,625)
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Net cash used in investing activities............................................ (77) (120,570)
Cash flows from financing activities:
Proceeds from sale of common stock.......................................... - 123,550
Exercise of common stock options............................................ - 779
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Net cash provided by financing activities........................................ - 124,329
Increase in cash and cash equivalents............................................ 889 4,708
Cash and cash equivalents at beginning of period................................. 612 2,433
-------- ---------
Cash and cash equivalents at end of period....................................... $ 1,501 $ 7,141
======== =========
</TABLE>
See accompanying notes
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<PAGE>
CYSIVE, INC.
Notes to Financial Statements
1. Basis of Presentation
The accompanying financial statements of Cysive, Inc. ("Cysive" or the
"Company") are unaudited and, in the opinion of management, reflect all normal
and recurring adjustments, which are necessary for a fair presentation as of the
dates and for the periods presented. The financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Consequently, these financial statements do not include
all the disclosures normally required by generally accepted accounting
principles for annual financial statements. Accordingly, these financial
statements should be read in conjunction with the Company's audited financial
statements and notes thereto for the period ended December 31, 1999, included in
the Annual Report on Form 10-K filed by the Company with the Securities and
Exchange Commission on February 22, 2000. The results of operations for the
three-month period ended March 31, 2000 are not necessarily indicative of
results for the full year.
References in this quarterly report relating to the number of shares of
our common stock and options do not reflect our 2-for-1 stock split to be
effected in the form of a stock dividend to be paid on May 8, 2000 to
stockholders of record on April 27, 2000.
2. Secondary Public Offering
On March 17, 2000, the Company and certain selling stockholders
completed a secondary public offering. The Company issued 1.5 million shares of
common stock resulting in total net proceeds to the Company of $123.4 million
(after underwriting discounts and commissions and offering costs).
3. Earnings per share
The Company presents both basic net income per share and diluted net
income per share. Basic net income per share is based on the weighted average
number of shares outstanding during the period. Diluted net income per share
reflects the per share effect of dilutive common stock equivalents.
4. Compensation Expense
In 1999, stock options to purchase 3,003,750 share of common stock were
granted at exercise prices below fair market value of the common stock on the
date of grant. Options to purchase 1,346,360 shares of common stock vested upon
issuance and as a result, the Company recorded $13.3 million in stock
compensation expense in April 1999. The Company recorded the remaining $15.1
million as deferred stock compensation. This is amortized on a quarterly basis
over the period in which the remaining options vest. During the three months
ended March 31, 2000, the Company recorded approximately $966,000 as stock
compensation expense.
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<PAGE>
5. Income Tax Expense
The Company operated as an S-corporation under the Internal Revenue
Code since it commenced operations in 1994 until September 30, 1999, at which
time the Company converted to a C-corporation. Accordingly, the Company was not
subject to federal and most state income taxes up through September 1999,
including the three months ended March 31, 1999 due to the S-corporation status.
Additionally, as a result of this conversion to a C-corporation, the
Company recorded a deferred net tax benefit of $4.8 million for the cumulative
differences between the historical cost and tax basis of certain assets and
liabilities. Included in the $4.8 million net tax benefit was $5.0 million of
deferred tax assets which represents the tax benefit the Company would realize
upon the sale of certain non-qualified stock options. Additionally and in
conjunction with the secondary public offering referenced in footnote 2, certain
grantees of qualified and incentive stock options exercised a portion of these
options and sold the common stock issued upon such exercise. This sale created
an additional tax benefit of $11.3 million to the Company. The Company recorded
a valuation allowance of $11.3 million because the Company believes that it is
uncertain as to whether it shall receive any future benefit arising from their
tax benefits.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis compares the three month period
ended March 31, 2000 to the corresponding period ended March 31, 1999 for Cysive
and should be read together with our financial statements and notes thereto
appearing elsewhere in this Form 10-Q and together with our Annual Report on
Form 10-K filed with the Securities and Exchange Commission on February 22,
2000.
The matters discussed herein and elsewhere in this 10-Q may include
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements include, without
limitation, any statement that may predict, forecast, indicate or imply future
results, performance or achievements and may contain the words "believe,"
"anticipate," "expect," "estimate," "project," "will be," "will continue," "will
likely result" or similar words or phrases. The matters discussed herein involve
risks and uncertainties which could result in operating performance that is
materially different from that implied in the forward- looking statements. Risks
that could cause actual results to differ materially from those in the
forward-looking statements include, but are not limited to, our ability to
manage growth and attract and retain highly trained and experienced employees;
the loss of or a significant reduction in the work performed for any of our
largest customers; changes in the demand for professional Internet services;
increased competition in the Internet and electronic business industry; and our
ability to respond to new technological advances in the internet and e-business
industry. Additional information concerning these and other risks and
uncertainties is contained from time to time in our filings with the Securities
and Exchange Commission. Given these risks and uncertainties, investors should
not place undue reliance on forward-looking statements as a prediction of actual
results.
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<PAGE>
Overview
Cysive is a leading software engineering firm that designs and builds
complex, highly customized systems supporting large scale e-businesses.
E-businesses are companies that conduct a significant portion of their business
through electronic commerce channels which are integrated with existing internal
systems, such as accounting, billing, manufacturing and inventory control. Since
commencing operations in 1994, we have used advanced Internet technologies to
build our customers' e-business capabilities. We design software systems which
can handle high volumes of customer transactions, operate reliably 24 hours per
day, seven days per week and expand to meet the growth requirements of large
scale e-businesses.
We derive our revenues from software engineering services which are
provided primarily on a time and materials basis. Revenues are recognized and
billed monthly by multiplying the number of hours expended by our software
engineers in the performance of the contract by the established billing rates.
Our customers reimburse us for direct expenses allocated to a project such as
airfare, lodging and meals. Consequently, these direct reimbursements are
excluded from revenues.
Our financial results may fluctuate from quarter-to-quarter based on
factors such as the number of projects, the amount and timing of our customers'
expenditures, employee utilization rates, hourly billing rates and general
economic conditions. Revenues from a few large customers may constitute a
significant portion of our total revenues in a particular quarter or year. For
example, for the three-month periods ended March 31, 1999 and 2000, our five
largest customers represented 84.8% and 54.6% of our revenues, respectively.
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<PAGE>
Results of Operations
The following table presents, for the periods indicated, the relative
composition of revenue and selected statements of operations data as a
percentage of revenue:
Three months ended
March 31,
---------------------
1999 2000
-------- --------
Revenues 100.0% 100.0%
Direct costs....................................... 36.6 33.2
-------- -------
Gross profit.......................................... 63.4 66.8
Operating expenses:
General and administrative....................... 31.0 33.7
Sales and marketing.............................. 18.5 22.3
Stock compensation............................... 0.4 7.8
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Total operating expenses.............................. 49.9 63.8
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Operating income...................................... 13.5 3.0
Other income, net..................................... 0.3 4.7
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Income before income taxes............................ 13.8 7.7
Income tax expense.................................... 0.0 4.8
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Net income............................................ 13.8% 2.9%
======== =======
Three Months Ended March 31, 2000 Compared to the Three Months Ended March
31, 1999
Revenues. Revenues increased $8.1 million, or 194.3%, to $12.3 million
for the three months ended March 31, 2000 from $4.2 million for the same period
in 1999. This increase in revenues was due primarily to an increase in our
billable rates and an increase in business resulting from an increase in the
number of billable employees. In addition, as a result of the direct sales
efforts, our number of customers increased by 15 to 24 for the three months
ended March 31, 2000 from 9 for the same period in 1999.
Direct Costs. Direct costs increased $2.6 million, or 166.6%, to $4.1
million for the three months ended March 31, 2000 from $1.5 million for the same
period in 1999. The number of employees increased 170% compared to 1999. As a
percentage of revenues, direct costs decreased to 33.2% for the three months
ended March 31, 2000 from 36.6% for the same period in 1999. This decrease in
direct costs as a percentage of revenues was primarily attributable to our
higher utilization rates for the three months ended March 31, 2000 of 93%
compared with 82% for the same period in 1999.
Gross Profit. Gross profit increased $5.6 million, or 210.3%, to $8.2
million for the three months ended March 31, 2000 from $2.6 million for the same
period in 1999. The gross margin
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<PAGE>
increased to 66.8% for the three months ended March 31, 2000 from 63.4% for the
same period in 1999 because our revenue growth exceeded the rate that direct
costs increased.
General and Administrative. General and administrative expenses
increased $2.8 million, or 220.2%, to $4.1 million for the three months ended
March 31, 2000 from $1.3 million for the same period in 1999. As a percentage of
revenues, general and administrative expenses increased to 33.7% for the three
months ended March 31, 2000 from 31.0% for the same period in 1999. This
increase was due primarily to our expansion of our recruiting and corporate
administrative staffs, the addition of new regional offices, the inclusion of
costs associated with being a publicly-held company, the increase in legal
expenses as well as the increase in costs to support the increased number of
employees.
Sales and Marketing. Sales and marketing expenses increased $2.0
million, or 255.6%, to $2.7 million for the three months ended March 31, 2000
from $771,000 for the same period in 1999. As a percentage of revenues, sales
and marketing expenses increased to 22.3% for the three months ended March 31,
2000 from 18.5% for the same period in 1999. This increase was primarily due to
the expansion of our direct sales force to 18 for the three months ended March
31, 2000 from 8 for the same period in 1999 and the increase in variable
compensation linked to the increase in sales and billing rates. In addition, we
incurred additional expenses by increasing its marketing and brand building
programs in the three months ended March 31, 2000.
Stock Compensation. We recorded $966,000 in stock compensation for the
three months ended March 31, 2000 as compared to $19,000 in the same period in
1999. This expense represents the difference between the deemed fair market
value of the common stock underlying vested stock options and their exercise
price. The stock compensation expense for the three months ended March 31, 2000
was significantly larger than the same period in 1999 due to the revaluation of
the deemed fair market value of the stock options in connection with our initial
public offering.
Operating Income. Operating income decreased $201,000, or 35.6% to
$363,000 for the three months ended March 31, 2000 from $564,000 for the same
period in 1999. The operating margin decreased to 3.0% for the three months
ended March 31, 2000 from 13.5% for the same period in 1999. Excluding the
impact of the stock compensation expense, operating income increased $765,000,
or 135.6% to $1.3 million for the three months ended March 31, 2000 over the
same period in 1999. Operating margin, excluding the impact of the stock
compensation expense, decreased to 10.8% from 13.5% for the same period in 1999.
Other Income, Net. Other income, net increased $570,000 to $581,000 for
the three months ended March 31, 2000 from $11,000 for the same period in 1999
due to increased interest income earned from investments made in the three
months ended March 31, 2000 versus interest expense in the same period in 1999.
Income before income taxes. Income before income taxes increased
$369,000, or 64.3% to $944,000 for the three months ended March 31, 2000 from
$575,000 for the same period in 1999. As a result of the above factors, the
income before income taxes margin decreased to 7.7% for the three months ended
March 31, 2000 from 13.8% in the same period in 1999. Excluding the impact of
the stock compensation expense in 2000, income before income taxes increased
$1.3 million, or 232.2% for the three months ended March 31, 2000. Similarly,
income
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<PAGE>
before income taxes margin, excluding the impact of the stock compensation
expense, increased to 15.5% from 13.8% in 1999.
Income tax expense. We recorded income tax expense of $593,000 for the
three months ended March 31, 2000. We recorded no income tax for the three
months ended March 31, 1999 because we operated as an S-corporation under the
Internal Revenue Code during that period. Assuming we operated as a
C-corporation for the three months ended March 31, 1999 with a 40% effective tax
rate, income tax expense would have been $230,000.
Net Income. Net income decreased $224,000, or 39.0%, to $351,000 for
the three months ended March 31, 2000 from $575,000 for the same period in 1999.
As a result of the above factors, the net margin decreased to 2.9% for the three
months ended March 31, 2000 from 13.8% in the same period in 1999. Excluding the
impact of the stock compensation expense in 2000 and including the income tax
expense in 1999, net income increased $950,000, or 275.4%, for the three months
ended March 31, 2000. Similarly, net income margin, excluding the impact of the
stock compensation expense in 2000 and including the income tax expense in 1999,
increased to 10.5% for the three months ended March 31, 2000 from 8.3% in the
same period in 1999.
Liquidity and Capital Resources
On March 17, 2000, the Company and certain selling stockholders
completed a secondary public offering. The Company issued 1.5 million shares of
common stock resulting in total net proceeds of $123.4 million (after
underwriting discounts and commissions and assumed offering costs).
Cash and cash equivalents were $2.4 million at December 31, 1999 and
$7.1 million at March 31, 2000. Net cash provided by operating activities was
$966,000 and $949,000 for the periods ended March 31, 1999 and 2000,
respectively. Capital expenditures of $77,000 and $2.6 million for the three
months ended March 31, 1999 and 2000, respectively, were used primarily for
computer equipment, office equipment and leasehold improvements related to our
growth.
The Company anticipates that the net proceeds from its secondary public
offering, together with existing sources of liquidity and funds generated from
operations, should be adequate to fund its currently anticipated cash needs
through at least the next 18 months. To the extent it is unable to fund its
operations from cash flows, it may need to obtain financing from external
sources in the form of either additional equity or indebtedness. There can be no
assurance that additional financing will be available at all, or that, if
available, the financing will be obtainable on favorable terms.
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<PAGE>
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings
With respect to the pending legal proceeding disclosed in our Form
10-K filed with the commission on February 22, 2000, the plaintiff has filed a
cross bill against certain executive officers and another individual alleging
contribution and fraud. Additionally, a trial for this matter has been scheduled
for September 11, 2000.
Other than as disclosed above, there are no material pending legal
proceedings.
Item 2. Changes in Securities and Use of Proceeds
Between January 1, 2000 and March 31, 2000, we granted options to
purchase a total of 111,000 shares of common stock to certain of its employees
under our Amended and Restated 1994 Amended Stock Option Agreement.
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<PAGE>
ITEM 6 Exhibits and Reports on Form 8-K
a. Exhibits:
27.1 Financial Data Schedule
b. Reports on Form 8-K:
None
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Form 10-Q to be signed on its behalf by the
undersigned thereunto duly authorized.
CYSIVE, INC.
Date: May 5, 2000
/s/ John R. Lund
-----------------------------------
By: John R. Lund
Chief Financial Officer, Treasurer
and Secretary
(Chief Financial and Accounting Officer)
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED 3/31/00 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 1093193
<NAME> CYSIVE, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1.000
<CASH> $7,141
<SECURITIES> 162,984
<RECEIVABLES> 10,491
<ALLOWANCES> 654
<INVENTORY> 0
<CURRENT-ASSETS> 181,433
<PP&E> 3,834
<DEPRECIATION> 677
<TOTAL-ASSETS> 189,464
<CURRENT-LIABILITIES> 5,732
<BONDS> 0
0
0
<COMMON> 136
<OTHER-SE> 183,596
<TOTAL-LIABILITY-AND-EQUITY> 189,464
<SALES> 12,295
<TOTAL-REVENUES> 12,295
<CGS> 4,079
<TOTAL-COSTS> 4,079
<OTHER-EXPENSES> 7,853
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 944
<INCOME-TAX> 593
<INCOME-CONTINUING> 351
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 351
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.02
</TABLE>
